Shell_ Taking the Power Back

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Shell: taking the power back

4 November 2013 | By Hannah Gannag-Stewart(URL=/hannah-gannag-stewart/128.bio)

Shell legal director Peter Rees is switching litigation control away from external counsel to a unifiedglobal team of in-housers

Royal Dutch Shell is no stranger to legal challenges. With a top line of $467bn (290bn), operationsin around 70 nations and estimated production levels of oil and gas equivalent to 3 million barrels aday, Shells exposure to risk is wide-ranging. Little wonder then that CEO Peter Voser sought not

only an accomplished litigator to head Shells legal function but a strategist someone with thevision and influence to get hundreds of lawyers in numerous jurisdictions pulling in the samedirection.

That was precisely what Peter Rees QC set about doing when he joined Shell as legal director and anexecutive committee member of the FTSE 100 company in January 2011.

Slick move

The opportunity at Shell came up while he was a partner at US firm Debevoise & Plimpton(URL=http://www.thelawyer.com/debevoise-and-plimpton/415098.supplier) .

I was happy at Debevoise (URL=http://www.thelawyer.com/debevoise-and-plimpton/415098.supplier) my careerwas going well and I had no ambition to go in-house, and then the headhunter rang about Shell andsaid they were looking for someone and asked if Id be interested, Rees recalls. I said yes on thebasis of thinking theyd never pick me anyway.

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But Rees admits he never pictured himself working for Debevoise either. He started his career atNorton Rose (URL=http://www.thelawyer.com/norton-rose/415014.supplier) now Norton Rose Fulbright where he became the firms head of dispute resolution and a member of the executive committeebefore moving to Debevoise in 2006.

At Norton Rose he campaigned for the firm to make it compulsory that all litigators should havehigher rights of audience, a rule he imposed and which led to Norton Rose being the only law firmcertified by the SRA to offer higher rights advocacy training.

I never thought Id join a US firm but they needed a trial lawyer and I ended up arguing cases oneverything from aeronautical disputes in the Commercial Court to family cases, he says, adding Idnever have made QC without Debevoise, which he did in 2009.

When Shell confounded his expectations and offered him the job he was forced to rethink hispreconceptions about leaving private practice.

I looked at what the job offered and realised it was the best job in legal, he says. Youre involvedright at the top of the worlds largest company by revenue.

Rees is an accomplished litigator and advocate but unlike some others with the skills to make thoseclaims, he is also a born leader. He exudes clarity of thought and purpose, has a calm butdetermined disposition towards progressive change and is instantly likeable.

What you see is what you get with me, and that works well at Shell, Rees says, explaining whatgave him the edge over the competition when it came to landing one of the worlds top in-house

jobs. When I asked my predecessor what they were looking for, he said they needed someone withsoft skills as well as legal skills.

Despite the business trading since 1907, when it was formed of a merger between Royal DutchPetroleum and UK-based Shell Transport & Trading, when Rees joined, theoil and gas giant had only been unified under a single capital structure for five and a half years.

Prior to May 2005 Shell was comprised of a global network of subsidiaries, all with varying degreesof managerial Autonomy. Gradually, as the group drew together as a single entity, the businesseswere globalised under central leadership but the legal function remained disparate, with regionalin-house lawyers running their own relationships with external counsel and no fully centralisedcontrol being exercised.

The priority was to have a legal organisation that was the right size and focused on the right thingsto support the business, Rees explains. I had no idea whether there was scope for reduction whenI started. I felt the team and budget looked about right, but like a true lawyer I wanted evidence.

Rees initiated a zero-based cost analysis which enabled him to think about how he might designShells legal structure from scratch if he could. After about four months he came to the conclusionthat 95 per cent of what they were doing was right, but there was a need for some reorganisation.

Power cut

Rees predecessor Beat Hess had begun reducing legal spend by shrinking the panel to just five firms a process that, Rees says, was run mainly by Shells procurement team.

I felt the right level of local advice was missing, he says. There are benefits to working with onesupplier, but it removes choice.

Rees decided to establish a panel that could provide Shell with advice at the right price but be morelocal, ensuring it covered specific areas of work in particular jurisdictions.

I got the records of legal spend for the last three years and worked out what we were spendingwhere, and then checked it with all the regional heads, he says. Once he had that and the broadercost analysis at his disposal, he says it became obvious that any further reduction in spend would be

cutting to the bone.

Meanwhile, Rees was tasked with drawing together an annual report to the board on litigation spend,which accounts for the majority of Shells legal budget. This was no easy task while the legal

function was still operating along pre-unification lines.The litigation practice was centralised in the US where, in common only with Nigeria, the companyhad a high concentration of in-house litigators. Elsewhere in the world, contentious disputes weredealt with by external counsel, and because the lawyers instructing them were not litigators theystruggled to understand the nuances of the process and keep a tight rein on spend.


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Rees response to this was two-fold reorganise reporting lines globally and reclaim control fromexternal counsel by bringing litigation in-house in a big way.

He used the business structure already governing the rest of the business as a template for the newreporting lines. All those employed in departments related to the search for and recovery of crude oiland gas, or upstream activities, reported to a head of upstream. All those on the refining,marketing and supply side of the business, or downstream, reported to a head of downstream.

Today, the companys legal structure reflects the global nature of the business. Lawyers are notappointed by regional office but by business line except in upstream which is split betweenAmericas and international and there is much greater mobility between areas of the business as aresult. Lawyers no longer hit a glass ceiling at the top of the chain regionally there are alwaysopportunities in other countries and further up the company hierarchy.

The pro is that everyone in that line of business knows whats happening and can share learningmore easily, Rees says. The con is that there was a risk of creating silos,so we were anxious to ensure there is cross-fertilisation between business groups. We use IT andpractice area networks to communicate and encourage conversations between upstream anddownstream lawyers.

Reporting directly to him now, Rees has a general counsel for upstream international, downstream,IP, projects and technology, trade and shipping, corporate (who is also company secretary),upstream Americas, litigation and a chief ethics and compliance officer. Reporting to them is a global

network of around 750 lawyers and more than 200 support staff.

Before Rees joined there was no dedicated litigation group or general counsel so he appointed thecompanys former general counsel for projects and technology Brad Nielson to establish a globallitigation team (see box, below).

Rees made sure jobs were advertised in-house first but lawyers who applied had to be doing aminimum of 10 per cent litigation. The rest of the roles were recruited from outside. The companynow has a global litigation team of about 80 lawyers in 15 countries.

Explaining the emphasis on litigation, Rees says: If you look at most corporations these days,litigation and compliance is the biggest risk. No corporation will go down because of a failed M&Adeal.

It is for that reason, he adds, that there is a trend among big corporations to appoint litigators.

An extension to that thinking is the position of lawyers, and indeed litigators, on the boards of majorcorporations. Rees firmly believes his role on the executive committee has allowed him to gain a farbetter understanding of how a company such as Shell operates. Strategically speaking, it also makeshim farbetter placed to prevent and deflect legal challenges.

Its like having three jobs in one, he says. On the one hand its like running a big law firm, whichis the one I was prepared for, having been on the management team at Norton Rose. But at Shell,youre also on the executive committee and then, thirdly, youre a senior legal adviser to the boardand have to understand what they need to be appraised of.

That oversight and enhanced grasp of how the company works has helped Rees control expenditure.In total, internal and external legal spend has reduced by a third over the past six years. This hasbeen achieved, in part, by slashing spend on outside counsel by 50 per cent in that period. In 2007,55 per cent of the companys total legal spend was on external counsel this is now down to 35 percent.

The extensive panel that Rees has been establishing this year is a work-in-progress. Hesssmicro-panel was always going to be up for reviewafter three years but Rees says there is no time limit on his panel.

We will assess the way the relationships work and see who we end up using most, he explains.Then he adds with honesty: The aim is that the panel will shrink according to who we work withbest.

Relationships

The revamped panel consists of more than 150 firms, with Baker & McKenzie(URL=http://www.thelawyer.com/baker-and-mckenzie/415097.supplier) , CMS(URL=http://www.thelawyer.com

/cms/415042.supplier) Cameron McKenna and Reess former firm Debevoise among those newly


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appointed. Eleven firms have been revealed as having been successful in at least three jurisdictions,including legacy panel members Allen & Overy(URL=http://www.thelawyer.com/allen-and-overy

/414999.supplier) , Clifford Chance (URL=http://www.thelawyer.com/clifford-chance/415001.supplier) and Simmons& Simmons. Dentons, Holman Fenwick & Willan, King & Spalding, Linklaters(URL=http://www.thelawyer.com/linklaters/415011.supplier) and Norton Rose Fulbright also secured places.

At the time of the panel shake-up being announced, Rees commented: We will no longer have aglobal panel of firms that will act for us. Globally, it will be much more aseries of relationships with firms that have capabilities in the jurisdictions we are working in.

The statement was, arguably, a less than subtle nod towards his intention to shift the power awayfrom external counsel and back into the hands of his own team.

Price, he says is not the only factor he is interested in with his panel. Related to price, he explains, ispredictability. Rees wants to be quoted a price at which the job can be done, not one that will proveto be a moving target.

The biggest waste of legal fees is when the firm does things they havent been instructed to do, hesays.

Full team ahead

Teamwork, therefore, is essential for working well with Shell.

Rees is adamant on this point.

Were not going to hand work over, he asserts. We say this is our deal and our case you haveto work with us.

According to Rees the average PQE at Shell is 19 years. With that level of experience under theirbelts Shells lawyers outrank most partners so it is crucial that external counsel have a thoroughunderstanding of the business and its needs.

The big mistake most firms make is being on transmit rather than receive, he explains, admittingthat he gained a different perspective himself once he joined Shell. The big learning curve for mewas that Id been incredibly naive in pitches I was telling them things they already knew.

Although he says he is continually learning it is clear that Rees is as acutely aware of the commercial

risks as the legal ones facing Shell.

Reflecting on the restructuring he has already undertaken in the past two years, he says: If youstarted again youd never split the legal structure.

It sounds a little wistful in its calm delivery, but Rees has been quite deliberate in encouraging cross-fertilisation across business streams, gradually blurring expertise between upstream anddownstream lawyers to build a more flexible and well-rounded legal team.

He recently instigated a top-level reshuffle, appointing former secretary to Shells executivecommittee and assistant to the chief executive officer Michael Coates as head of the UKsdownstream legal team and associate general counsel of manufacturing and marketing for NorthWest Europe. Coates took over from incumbent Bob Henderson who has moved to the US to become

associate general counsel, upstream Americas integrated gas/new business.But its not all over. Rees hints that his legal strategy is very much unfinished business.

The business is getting more integrated, so having knowledge of both upstream and downstream isvaluable, he says.

The results of that zero-based cost analysis it seems are still in his minds eye and his ambition torebuild the legal function from scratch is gradually, almost imperceptibly, being met by a measuredand incremental strategy of longer term change.

Beat Hesss micro-panel

Allen & Overy

Clifford Chance

Cravat Swaine & Moore

Simmons & Simmons


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Slaughter and May

Who supplies the worlds energy?

National oil companies, owned by governments, control more than 90 per cent of the worlds oil

reserves. Shell is the nineteenth-largest oil and gas company in the world and supplies a mere2.5 per cent of the planets oil and gas.

Added together, BP, Chevron, Conoco, Exxon, Shell and Total still just supply 12 per cent of theworlds oil and gas.

Source: Shell

click to enlarge (URL=http://thelawyer.com/Pictures/web/g/j/o/shell_figs_big.jpg)

Integrating the litigation function

In April 2011 Brad Nielson was appointed to establish and lead a new global litigation team,which launched in May 2012. To ensure it was aligned with the structure of the business andavoid having a top-heavy hierarchy Nielson sub-divided the group into global litigationinternational and global litigation Americas.

Legacy Fulbright & Jaworski partner Richard Hill was appointed associate general counsel for theinternational sub-group, covering disputes in Europe and the CIS, the Middle East, North Africa

and the Asia Pacific region, while Houston-based associate general counsel Lynda Irvine tookcontrol of the Americas.

Associate general counsel for strategy and co-ordination, Kimberly Phillips, is also part ofNielsons team. She worked alongside Peter Rees in the latest external panel review as thelitigation group is the largest user of external counsel. The group now consists of a total of 135staff, including about 75 lawyers, in 15 countries.

Nielson says that there four categories of contentious dispute that arise regularly across the oiland gas industry. Perhaps unsurprisingly, the disruption caused by environmentalnon-governmental organisations sits firmly at the top of that list, followed closely by theenforcement of foreign judgments and then the sweep of US-style litigation such as class actions,long-winded discovery processes and punitive damages, and finally the use of bilateral

investment treaties to enforce contractual rights in more challenging jurisdictions.The ongoing Chevron v Donzigercase in which Chevron is in court in New York trying to securea judicial order rendering an Ecuadorian judgment unenforceable is a good example of the sortof foreign enforcement issues that can arise.


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As well as reacting to disputes, Nielson says the department is proactive in mitigating the risk oflitigation.

As a result of having litigators working across all departments, were now able to take theirlearning across the whole business, he says. Previously it might only have been the group thatwas involved in the dispute that would have been able to learn from it.

This learning is disseminated in a variety of ways. On the one hand, Nielson explains that thelitigation team takes greater ownership of disputes than would have been the case before thededicated team was set up.

Upstream and downstream teams support themselves, butwe cut across them all. One fundamental benefit of this isthat, rather than have litigators working with the business lawyers, we work directly with thebusiness.

The dispute comes from the business lawyer to the litigation team, who then takes ownership ofit and feeds back to the business lawyers once its resolved.

The integration of the litigation group into the broader business has enabled Shell to betterassess the value of pursuing a given piece of litigation. The business objectives of doing so arenow far more critical in that process than they were under the less joined-up, reactive system.

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Readers' comments (3)

Anonymous | 4-Nov-2013 1:26 pm

'Rees is an accomplished litigator and advocate... he is also a born leader. He exudes clarity ofthought and purpose, has a calm but determined disposition... he is instantly likeable.'

Does The Lawyer have a crush on this guy?

Unsuitable or offensive? Report this comment(URL=http://www.thelawyer.com/reportToModerator?storycode=3011742&commentcode=211602)

Anonymous | 4-Nov-2013 6:07 pm

My favourite part of this article is the quote from Rees "the big mistake firms make is being ontransmit rather than receive." He is absolutely right. It is really crucial for us external counselto have a thorough understanding of the client's business and its needs. Otherwise as he said,we will be incredibly naive in pitches and we will be telling them things they already know.


Exxon Waldez | 5-Nov-2013 3:57 pm

As someone who has worked with PR at his previous firms and who has worked with Shellsince he joined, I can confirm that he is worth the plaudits and "gets it" - as thetransmit/receive comment shows. Notwithstanding the general hagiography that stands as a


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proxy for The Lawyer's "journalism", this was a good article that shows why he was hired.


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